PARTNERSHIP

Question 1

Definition of a general partnership:

Answer 1

A PS is formed as soon as 2 or more person associate to carry on as co-owners a business for profit, regardless of whether the parties subjectively intended to form a PS. No state filing or other formalities are required.

Question 2

M and I start a bakery. They split the profits and jointly make decisions for the business. They do not call themselves partners; in fact, they do not even know what a partnership is. Have they formed a GP?

Answer 2

Yup. We don’t care about their subjective intent. Sharing profits.

Even if they signed a paper saying “We are not partners” and repeat it 100 times. Doesn’t matter.

Question 3

What are the 2 most important factors in determining whether a partnership exists?

Answer 3

1. sharing of profits

2. right to control

Question 4

A person who receives a share of the _____ is ________ to be a partner unless the profits were received in payment of :

Answer 4

profits; presumed

1. a debt
2. wages or other compensation
3. rent
4. interest on a loan.

Question 5

S has loaned money to the M & I Bakery. He is to receive 10% of the profits until the loan is paid off. Is there a presumption he is a partner?

Answer 5

Nope. REbuts the presumption because he is getting the profits as repayment of a debt.

Question 6

If there is profit-sharing, and therefore a presumption of a PS, one can try to rebut that presumption with evidence suggesting the lack fo a co-ownership relationship, such as ____________ or no sharing of ____________.

Answer 6

right to control; losses

Question 7

What is partnership by estoppel?

Answer 7

If no partnership was formed in fact, parties may still be liable as if they were partners to protect reasonable reliance by 3rd parties.

Question 8

Grace applies to Citibank for a loan. Will lets Grace say that he is her partner, even though he is not. Is Will liable to Citibank if it loans money to Grace based on the statement?

Answer 8

Yes, it is only fiar ot hold Will liable to the bank as if he really were her partner.

*Citibank can also recover from Grace.

Question 9

Does partnership law require a writing?

Answer 9

No, but SOF might.

Question 10

Ice T and IceCube form a partnership to record several rap albums. Writing required?

What if they agreed that the partnership would last for 2 years?

Answer 10

No.

Yes. Contract cannot be completed w/in 1 year = SOF.

Question 11

No partnership agreement is required, but be on the lookout for the existence of one because:

Answer 11

Pship law allows the partners to contract around almost all of the statutory provisions. Look for an agreement first, then fall back on the statutory default fules in the absence of an agreement.

Question 12

Once formed, a partnership is considered to be a ___________ distinct from its _________.

Answer 12

legal entity; partners

Question 13

What is the general voting rule for partners in a general partnership?

Answer 13

Unless otherwise agreed, all partners have equal rights in teh management of the business with equal votes.

Question 14

Decisions regarding matters within the ordinary course of the partnership business require a _____ vote of the partners. Matters outsideof the ordinary course of business requires the consent of _______ partners.

Answer 14

majority; all

Question 15

A, B, and C contribute 60%, 30% and 10% respectively. They also agree to split profits and losses 60-30-10. On an ordinary business matter, A votes against, while B and C votes for. Who prevails.

What if the matter was outside the ordinary course of business (amending the pship agreement, e.g.)?

Answer 15

1. B and C win with the majority vote. Other #s don’t matter.
2. Unanimity req’d so A wins.

Question 16

As a general rule, do partners have a right to compensation?

Answer 16

No. Not unless otherwise agreed.

A and B are partners. A works 96 hours a week. B sleeps all day. Does A have a right to a salary? No. Unless otherwise agreed to.

Question 17

Unless otherwise agreed, profits are shared _____ among the partners (by number). Unless otherwise agreed, losses are shared in teh _______ manner as profits.

Answer 17

equally; same

Question 18

A, B, and C form a partnership. A contributes 60% of the capital, B contributes 30%, and C contributes 10%. Inexplicably, nothing is said about how profits and losses will be split. How will profits be shared?

How will losses be shared?

Answer 18

Equally for profits and since losses do whatever profits do, then equally for losses too.

Question 19

A, B, and C form a partnership. A contributes 60% of the capital, B contributes 30%, and C contributes 10%. Assume that they agreed to split profits 60-30-10, but they have no agreement as to losses. How will profits be shared?

Answer 19

60-30-10. Same as profits.

Question 20

A, B, and C form a partnership. A contributes 60% of the capital, B contributes 30%, and C contributes 10%. Assume that they agreed to split losses 60-30-10, but they have no agreement as to profits. How will losses be shared?

How will profits be shared?

Answer 20

Losses will be shared 60-30-10.

Profits will be shared equally. Profits do not follow losses.

Question 21

With respect to the pship’s liability in tort, a partnership is liable for loss or injury caused to a person as a result of the tortious conduct of a partner (or an employee) acting in the __________ of business of the pship or with __________ of the pship.

Answer 21

ordinary course; authority

Question 22

With respect to the pship’s liability in contract, a partnership is liable for contracts entered into on its behalf by partners with __________________or _______________________ authority.

Answer 22

actual; apparent

Question 23

A, B, and C form a partnership to run a cattle ranch. All agree that A shall have the exclusive authority to enter into grazing leases, B shall have the exclusive authority to purchase and sell livestock, and C shall have the exclusive authority to hire help. A enters into a transaction with T to purchase cattle (B’s authority) on behalf of the partnership. Is the partnership bound because of actual authority? Is the partnership bound by apparent authority?

Answer 23

Actual authority: NO

Apparent Authority: Likely, yes.

From T’s perspective, this contract was in the ordinary course of the business of running a cattle ranch (unless T was somehow aware that A lacked actual authority).

Question 24

The partnership statute states that a partner is an _____________ of the partnership, and that a partner has ______________ authority to bind the partnership to transactions within the ordinary course of the pship’s business (unless the third party is aware that the partner lacks actual authority).

Answer 24

agent; apparent

Question 25

How can actual authority be created in a pship?

Answer 25

1. partnership agreement 2. requisite vote of the partners (maj. vote for ordinary business matters) 3. filing of a "statement of partnership authority" with the SoS.

Question 26

Grants of and restrictions on partner authority to transfer partnership real property in the statement are binding on third parties if the statement is also recorded in the _______________ where the property is located.

Answer 26

county. * In other words, third parties are deemed to have constructive knowledge of the statement if secretary of state and county filings are made. Third parties are benefitted by filed grants of authority (unless they have actual knowledge that the partner lacked authority), and burdened by filed restrictions on authority.

Question 27

For real property transactions taken by the pship, the pship can file with the county and a 3rd party will be burdened by the restriction. With all other transactions, ___________.

Answer 27

Restrictions on partner authority in teh statement are not binding on 3rd parties. * In other words, 3rd parties are only deemed to have constructive knowledge of filed grants of authority--not filed restrictions. * 3rd parties are benefitted by filed grants (unless they have actual knowledge that the partner lack authority), and are not burdened by filed restrictions (only actual knowledge of restrictions burdens them).

Question 28

A defining characteristic of the general partnership is that each partner is ________________for all of the obligations of the partnership (whether arising in tort or contract). BUT: the plaintiff must first ___________________ partnership resources before seeking to collect from an individual partner's assets (so the partners are essentially guarantors).

Answer 28

jointly and severally liable; exhaust.

Question 29

You pass the bar exam and form a law firm as a general partnership. One of your partners commits malpractice representing a client. Can the client recover from you alone?

Answer 29

Yes. The malpractice by your partner created a partnership obligation. As a partner, you are jointly and severally liable for all partnership obligations. But the plaintiff must first exhaust partnership resources. *Note: Where one partner pays a partnership obligation, he is entitled to indemnification from the partnership. He may also require the other partners to contribute their pro rata shares of the payment if the partnership is unable to indemnify.

Question 30

A forms a partnership with B and C. They all agree that C will not be responsible for any partnership losses. Is C shielded from liability to a third party?

Answer 30

No. Partners cannot limit a third party's rights without the 3rd party's consent. The agreement is effective, however, among the partners themselves.

Question 31

If the partnership admits a new partner (unless otherwise agreed, this requires a unanimous partner vote), is that partner liable for debts incurred by the partnership before his admission?

Answer 31

A newly admitted partner is not personally liable for partnership obligations that arose before his admission. He can only lose the amount of his investment in the partnership.

Question 32

Partners in general partnerships owe fiduciary duties of _________________ and _________________ to each other and to the partnership. They also owe a statutory duty of _________________________.

Answer 32

loyalty; care; disclosure

Question 33

The duty of loyalty in a partnership requires each partner to:

Answer 33

1. account to the pship for any benefit derived by the partner in conducting the parternship business, using the pship's property, or appropriating a partnership opportunity 2. to refrain from dealing with the partnership in the conduct of its business as (or on behalf of) an adverse party; and 3. to refrain from competing with the pship in the conduct of its business.

Question 34

The duty of care in a partnership requires each partner to:

Answer 34

This duty requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

Question 35

The duty of disclosure is a statutory duty that requires each partner and the partnership to furnish to a partner______. Without demand? On demand?

Answer 35

Without demand: must furnish any information concerning the pship's business and affairs reasonably required for the proper exercise of the partner's rights and duties On demand: any other information concering the pship's business and affairs (except to the extent the demand or information demanded is unreasonable or otherwise improper under the circumstances).

Question 36

A partnership agreement may not eliminate the duties of ______ or _______, but can eleiminate the duty of ______.

Answer 36

loyalty; care; disclosure

Question 37

It is partnership property if it is acquired in the ________________________ name or in a _____________________ name where it is apparent from the document that she is acting for a partnership (e.g., it mentions a partnership or says she is a partner).

Answer 37

partnership's; partners

Question 38

It is ___________________________ to be __________property if partnership funds are used.

Answer 38

presumed; partnership

Question 39

It is _______________________________ to be a ______ property if acquired in her name without partnership funds and there is no sign that she is acting for a partnership.

Answer 39

presumed; partner's

Question 40

Polly bought a truck in her name with her own money. Her partnership uses the truck for deliveries. Does the truck belong to the partnership or does it belong to Polly?

Answer 40

Presumed to belong to Polly becuase she bought in her name without pship funds.

Question 41

If the truck is partnership property, may the partnership pledge it as collateral for a loan?

Answer 41

Sure. Rights are totally unrestricted for the partnership to use its property.

Question 42

If the truck is partnership property, may a partnership creditor levy on / attach the truck?

Answer 42

Yup. A partnership creditor can seize partnership assets to satisfy the partnership's debts.

Question 43

A partner is ____________ a co-owner of partnership property and has no interest in partnership property which can be transferred.

Answer 43

NOT (The partnership is an entity; the partnership itself, not the partners, owns its property!) A partner can simply use partnership property for partnership purposes.

Question 44

Assume a truck is partnership property. May Polly partner use it on her vacation?

Answer 44

Nope. Not unless the parternship consents.

Question 45

A partner's interest in a partnership is called his _______.

Answer 45

partnership interest. Like a shareholder's interest in a corporation is called stock.

Question 46

A partnership interest is comprised of ________ rights and _________ rights.

Answer 46

Management rights • right to participate in the mangement of the business • right to obtain information about the partnership • right to be recognized as "partner" Financial Rights • partner's right to receive his share of any profit distributions made by the partnership

Question 47

The pick your partner rule states that:

Answer 47

unless otherwise agreed, a partner cannot unilaterally transfer his management rights and thereby make the transferee a partner.

Question 48

The default rule for the admission of a new partner is:

Answer 48

that it requires a unanimous vote of the existing partners.

Question 49

Unless otherwise agreed, a partner can unilaterally transfer his ________ rights. The transferee merely has the right to receive profit distributions from teh aprtnership that would have otherwise gone to the partner. The transferee is not a _______; the _________ is still a partner and retains all of the management rights of a partner.

Answer 49

financial; partner; transferor

Question 50

A, B, C, and D are partners in the ABCD partnership. B purports to sell his partnership interest to X. X demands to be recognized as a partner and seeks to participate in the management of the partnership (vote, request information, etc). Is X a partner?

Answer 50

Nope. X can only be admitted as a partner upon a unanimous partner vote, which did not occur. A partner cannot unilaterally transfer management rights, which means that X is simply entitled to any profit distributions that would otherwise have been paid to B. B is still a partner with all of the rights of a partner (other than the right to profit distributions).

Question 51

Can Polly unilaterally assign her financial interest in the partnership? Can Polly devise it to her husband? Can a judgment creditor attach ("charge") her financial interest in the partnership?

Answer 51

Yes. A partner's financial rights are personal property and are unilaterally transferable. (either voluntarily or involuntarily). The transferee does not become a partner.

Question 52

What is dissociation?

Answer 52

A withdrawal: When a partner dissociates from a partnership, the partner withdraws or "bows out" of the pship.

Question 53

What are some examples of dissociation?

Answer 53

1. a partner giving notice to the partnership of his desire to withdraw (express will) 2. a partner's explusion, dealth, or bankruptcy 3. an agreed-upon event; and 4. the appointment of a reciver for a partner

Question 54

What is wrongful dissocation?

Answer 54

A partner will be deemed to have wrongfully dissociated if the dissociation is in breach of an express term in teh pship agreement.

Question 55

A dissociation is wrongful in a term partnership if the partner ______, ________, or becomes ______ before the end of the partnership.

Answer 55

withdraws, is expelled, bankrupt * Term

Question 56

A partner who wrongfully dissociates is liable to the pship for any _________ caused by the dissociation.

Answer 56

Damages

Question 57

What is an "at-will" partnership?

Answer 57

one where the partners have not agreed to remain partners until the expiration of a definite term or the completion of a particular undertaking. It is the default form of pship.

Question 58

What is a "term partnership"?

Answer 58

A pship where the partners have agreed, explicitly or implicitly, to remain partners for a definite term or until the completion of a particular undertaking.

Question 59

When a partner dissociates, one of 2 statutory avenues is implicated. What are the 2 statutory avenues?

Answer 59

1. Pship is dissolved and business must be wound up. Pship business will be liquidated. 2. Pship continues in existence w/ the dissociated partner becoming entitled to buy out of his partnership interest. (Dissolution or Buyout)

Question 60

Dissolution and winding up are required only in limited circumstances, such as:

Answer 60

1. agreement requiring winding up 1. business becomes illegal 3. issuance of a judicial decree 4. unanimous consent of the partners in a term p 5. expiration of a term pship

Question 61

In an at-will pship, any partner who dissociates by __________ may compel dissolution and winding up.

Answer 61

express will

Question 62

In a term partnershp, if one partner dissociates wrongfull, or if a dissocation occurs because of one partner's death or bankruptcy, dissolution and winding up of the partnership are required only if:

Answer 62

within 90 days of the dissocation, 1/2 of the remaining partners agree to wind up the pship.

Question 63

Gnerally, a dissociated partner remains liable for ______ partnership obligations.

Answer 63

pre-dissociation. ( a creditor can agree to release a withdrawing partner for a specific obligation)

Question 64

A partner might be liable for _______ liabilities incurred within _____ years after the dissociation. He can protect himself by:

Answer 64

post-disssociation; 2 * notifying creditors directly of his dissociation (effective immediately) * filing a public statement of dissociation (becomes effective 90 days after filing. Pship can also file.

Question 65

A dissociated partner has _____ to bind the pship for a period of time not exceeding __ years after dissociation. The pship can protect itself by_______ or __________.

Answer 65

* apparent authority * 2 * notifying the creditors directly (imm. effective) * filing a public statement of dissociation (become effective 90 days after filing

Question 66

When dissolution and winding up occur, pship assets must be applied to the discharge of partnership liabilites. If teh assets are insufficient, individual partners must ______ in accordance with their loss shares. If there are excess assets, they are distributed to partners in cash in accordance with their ______ shares.

Answer 66

contribute; profit

Question 67

What is the priority of distribution in pship dissolution?

Answer 67

1. Creditors: include outside creditors & inside creditors (partners who loaned $) 2. Repay all capital contributions paid into the pship by partners 3. Profits or Losses, if any.

Question 68

A and B dissolve the AyeBee partnership. In winding up, they liquidate the partnership assets and have a total of $1 million to distribute. How should that amount be distributed if (1) the partnership owes $600,000 to trade creditors; (2) Partner A loaned the partnership $100,000; and (3) Partner B made capital contributions of $200,000?

Answer 68

1. Creditors: 1,000,000-600,000 + 100,000= $300,000 2. Capital Contributions: $200,000. (so $300,000- 200,000) 3. $100,000 to split between themselves.

Question 69

Who can participate in the winding up of the pship's business?

Answer 69

partners who have not wrongfully dissociated.

Question 70

A, B, and C are partners in the Ah-Bay-Chay partnership. On May 5, an event requiring dissolution of the partnership occurs. On June 1, A contracts with TP for new business (the contract does not involve winding up). 1. Is the partnership liable to TP on the contract? 2. Are the partners liable to TP? 3. Would the partnership be liable to TP if B had filed a statement of dissolution on May 6? 4. If the partnership is liable, does it have any rights against A?

Answer 70

1. Yes, assuming apparent authority was established. Was within the ordinary course of pship business. 2. Yes. Partners and jointly and severally liable for obligations of pship, but TP must exhaust pship resources first. 3. Yes, because statement of dissolution is not effective until 90 days after filing. 4. Only if A knew about the dissolution when she entered the k.

Question 71

A partnership has a two-year term. May a partner dissociate before the term is up?

Answer 71

Yes, but the dissociation will be wrongful and the partner will be liable for damages since she agreed to stay for two years. The other partners can continue the business without dissolution and winding up; a buyout of the dissociated partner will be required.

Question 72

A partnership is formed to buy a piece of land, subdivide it, and sell off the lots. Can a partner dissociate before the last lot is sold off?

Answer 72

Yes, but the dissociation will be wrongful. This is a term partnership because it is a partnership to accomplish a particular undertaking. The partner will be liable for damages since she agreed to stay until the undertaking was completed. The other partners can continue the business without dissolution and winding up; a buyout of the dissociated partner will be required.

Question 73

A partnership is formed to operate a bar. May a partner dissociate after one week? ____________. This is an _____________________ partnership from which any partner may withdraw at any time without penalty.

Answer 73

Yes; at will The dissociating partner may compel dissolution and winding up of the partnership.

Question 74

A partnership has a two-year term. One of the partners dies. May the business continue, or must the partnership dissolve and wind up? What if it was an at-will partnership?

Answer 74

The business may continue unless, within 90 days after the dissociation, 1/2 of the remaining partners agree to wind up the partnership. This would not be considered a dissociation by express will, so the business can continue.

Question 75

What is a limited partnership?

Answer 75

A pship with at least one general partner and at least one limited partner. Because it is a Pship, general partnership prinicples typically apply unless displaced by LP specific provisions.

Question 76

How do you form a LP?

Answer 76

Must file a certificate of limited partnership with the Secretary of State. The information req'd in teh certificate is minimal: 1. name of the LP 2. name and address of the agnet for service/ process 3. the name & address of each general partner *The name must contain the phrase "limited partnership" or "L.P." or "LP". Warn the public of limited liability.

Question 77

The real detail on the operation and governance of a LP is typically found in a _________. It can be _______, _______, or _______.

Answer 77

partnership agreement; oral, written, or implied *As in a general partnership, the agreement can displace almost all of the statutory provisions.

Question 78

The LP is managed by the __________________ partner(s). Each general partner has equal rights in the management and conduct of the LP's activites. The vote of a _____________________ of the general partners is necessary for ordinary business activities. Limited partners usually have ____________ management rights unless the partnership agreement grants them rights.

Answer 78

general partners; majority; no

Question 79

Unless otherwise agreed, the vote of all partners (general and limited) is necessary for certain extraordinary activities, including

Answer 79

1. amendment of pship agreement 2. admission of new general or limited partner 3. sale of all or substantially all of LP's property (if sale is oustide the ordinary course of business).

Question 80

Unless otherwise agreed, distributions from a LP are made on the basis of the ___________.

Answer 80

partner's contributions. (i.e. in proportion to the value of each partner's contribution. (compare to GP where default rule is equal share of profits).

Question 81

General partners ________ for the obligations of the LP, just as they are in a GP.

Answer 81

are liable.

Question 82

A limited partner is _______________ personally liable for an obligation of the LP solely by reason of being a limited partner. Limited partners have __________________________, meaning that they can only lose the value of their investments.

Answer 82

not; limited liability

Question 83

A general partner owes the LP and the other partners the same fiduciary duties of loyalty and care that general partners owe in a general partnership. A limited partner does ___________ have any fiduciary duty to the LP or to any other partner solely by reason of being a limited partner.

Answer 83

not

Question 84

Definition of a limited liability partnership (LLP)

Answer 84

a general partnership where all of the partners have limited liability. In general, you apply general partnership rules to LLPs, with some exceptions.

Question 85

How to form an LLP?

Answer 85

1. Must file a statement of qualification with the SoS Minimal information includes: 1. name and address o fthe pship 2. statement that the pship elects to be an LLP 3. deferred effective date, if any P ship becomes LLP at the time of the filing of the statement or on the date specified in teh statement. * Name requires LLP, RLLP, Registered Limited LIability Partnership, etc.

Question 86

A partner in a LLP is _________ for the obligations of the LLP, whehter arising in tort, contract, or otherwise.

Answer 86

not personally liable. * Note: a partner always remains personally liable for her own wrongful acts.

Question 87

Definition of an LLC:

Answer 87

A hybrid between a corporation and a partnership in which the owners (called "members") have limited liability as well as the benefits of pship tax treatment. Not a corporaiton, not a partnership.

Question 88

How to form an LLC?

Answer 88

1. File Articles of Organization with the SoS Information req'd is minimal and includes: 1. name of the LLC 2. address of the LLC's registered office 3. Name of its registered agent *Name must include indication that it is an LLC. Limited liability company or LLC.

Question 89

The real detail on the operation and governance of the LLC is typically found in an ____________.

Answer 89

operating agreement

Question 90

Mangement of the LLC is presumed to be by __________. Other management arrangements can be made but they must be specified in the ___________.

Answer 90

all the members; articles of organization

Question 91

If management of an LLC is by the members, then:

Answer 91

1. a majority vote is required to approve most decisions, and 2. each member is an agent of the LLC

Question 92

Unless otherwise agreed, profits and losses are allocated on the basis of __________.

Answer 92

contributions

Question 93

Members are generally ___________ for the LLC's obligations. They have __________ and can only lose the amount of their investments.

Answer 93

not personally liable; limited liability As always, members are liable for their own torts.

Question 94

The fiduciary duties owed by a member (if member- managed) or a manager (if manager-managed) to the LLC and to its members are the fiduciary duties of __________________ and _________________________.

Answer 94

care; loyalty

Question 95

Essentially the partnership rule applies to an LLC --________ rights are unilaterally transferable, but __________ rights are not. One can become a member (i.e., management rights can be transferred) only with the consent of ___________________ of the members.

Answer 95

financial; management; all

Question 96

Partnerships and LLCs are taxed on a _________ basis.

Answer 96

pass through

Question 97

For pass through taxation, there is ______ entity-level tax; instead, business income is passed- through to the owners and reported on the owners' tax returns (regardless of whether that business income is actually distributed to the partners).

Answer 97

no. Compare to corproations where there is double taxation. corporation pays taxes on its income and shareholder pay taxes on that income again when and if it distributed to them.

Question 98

Note: LLPs and LLCs are generally the best vehicles for closely held businesses. They protect _________________ of the owners from liability for the obligations of the business; they allow the owners to contract around almost all of the statutory provisions (so that the business can be run as the owners desire); they allow all of the owners to participate in the management of the business; and they provide ______________________________________ income tax treatment.

Answer 98

ALL; PASS THROUGH